An application of Sigmoid and Double-Sigmoid functions for dynamic policyholder behaviour

Fabio Baione (), Davide Biancalana () and Paolo Angelis ()
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Fabio Baione: Sapienza University of Rome
Davide Biancalana: Università degli Studi del Sannio
Paolo Angelis: Finance and Territory, Sapienza University of Rome

Decisions in Economics and Finance, 2021, vol. 44, issue 1, No 2, 5-22

Abstract: Abstract The growing relevance of risk-based valuations of insurance contracts has stimulated the extension of the traditional deterministic lapse rate models towards a dynamic modelling. A popular dynamic model uses deterministic lapse rates as base rates and dynamic adjustment factors, generally assuming a relationship between lapses and one or more economic factors to describe policyholder behaviour. This relationship is generally represented by an S-Shaped function. This implies a monotonic increase in lapse rate by increasing the economic variable, usually set equal to a “market spread” between a benchmark rate and the policy crediting rate. In this paper, we assume a different policyholder behaviour, based on the assumption that the policyholder does not modify his/her behaviour for small values of the market spread. Hence, for a better description of such behaviour, the double-sigmoid function appears to be more adequate. The double-sigmoid function is obtained as a combination of two logits in their sum or product. Theoretical features and practical applications of the model are discussed.

Keywords: Logistic function; Double-Sigmoid function; Policyholder behaviour; Double-step function; Lapse rate (search for similar items in EconPapers)
JEL-codes: C02 C65 G02 G22 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10203-020-00279-7

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